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Monday, April 28, 2008

For More Food, Lower the Barriers

I'm three days late on this one, but it was a hectic weekend and I didn't have time to catch up on my daily reading until late on Monday. That's my story and I'm sticking to it.

In Friday's (4/25/08) issue of The Wall Street Journal, there was an interesting opinion piece about the hot button issue, Food and Free Trade. The authors, Nancy Birdsall of the Center for Global Development in Washington, D.C. and Arvind Subramanian of both the Center for Global Development and the Peterson Institute for International Economics, discuss the current food problem, and identify three major factors as contributing factors: rapidly growing Asian demand for food, biofuels, and drought.

While they point at some short-term actions that can be addressed at the next G8 summit in June, they also point at two trade policies that are aggravating the crisis. And reversing these policies, while having little probable effect in the short term, could go a long-way toward solving what appears to have the potential of a long-term problem.

Birdsall and Subramanian point to biofuel policies that essentially remove food supplies from the world market in the name of energy self-sufficiency, and export restrictions on food stuffs. They see this last item as more important than the removal of import barriers (and I'm presuming other subsidies) as are being discussed in the current Doha Round of trade negotiations. I may be incorrect in my presumption, but the authors do feel that import restrictions are currently being dropped voluntarily as each country tries to ease inflows of food. However, I don't see it as impossible that the barriers would be reimposed at the first sign of easing price pressures. And while current high prices probably make subsidies for some foods unnecessary, the complex maze of import barriers / export barriers / production subisidies has, in my opinion, so obscured the price signaling mechanism, that it is hard for any food producer anywhere to get an accurate read on the real market price. Consequently, the incentive structure cannot clearly point to the solution to this problem. And, this obscuring of the message only encourages speculation.

In the interim, some people riot, some people discuss, and others go hungry. Do we chalk this up to the Law of Unintended Consequences and try to "engineer" a new solution, with a new policy, and new unforeseen effects? Or maybe we can learn some basic economics?

I look forward to your comments.

**UPDATE**Not as much an update as it is an interesting story for use in the classroom, particularly if you and your students are unfamiliar with the producer side of this story. Check out the story on All Things Considered on NPR.

2 comments:

I actually think it's more of a strategic industry argument than an infant industry argument, although I could see where both would apply.

My thinking is that "energy independence" is seen as a more powerful political argument for most of the country. I suspect the fact that biofuels is "new" has less political weight outside of the ag areas. I'd be curioius as to what others think.

Blog Archive Note

All entries prior to August 15, 2007 appeared on the economic education blog of the Federal Reserve Bank of Chicago. Entries between August 15, 2007 and July 31, 2009 were under the auspices of the Powell Center for Economic Literacy in Richmond, VA.